Europe’s
Economy is falling like dominos. The Obama administration is following
the same destructive socialist expansion of government using smoke and
mirrors to convince us that it is the right way to go. It is clear that
Obama is sacrificing America for political gain. We have to choose now
who to follow.

For
the past year we have been watching Europe’s economy unravel.
It started in Greece as its debt got out of control. They were forced
to make drastic cuts in their budget in order to get bailouts from the
European Union (EU) and the Bank of International Settlements (BIS).
Riots ensued as unions demanded their salaries and benefits not be cut.

The
crisis soon spread to Ireland and then Portugal. Again, budgets had
to be slashed resulting in more riots and discontent. Although England
and other European nations are not in immediate trouble, they see the
handwriting on the wall and are beginning to make needed cuts before
their budgets have to be slashed. That has precipitated angry protests
from unions which do not want to give up their cushy benefits.

The
situation in America is rapidly becoming eerily similar to the dire
circumstances that caused Greece, Ireland and Portugal to go belly up
forced them to seek international bailouts.[1]

In
the past decade Greece, Ireland and Portugal borrowed heavily
to fund their exorbitant socialist programs. In the fall of 2009, investors
began to lose confidence in Greece’s government’s ability
to rectify its economic problems and its ability to come good on its
debts. That culminated in April of 2010 with requests to the world for
a bailout.[2]

Ireland
and Portugal were not far behind. Last week a scathing report of the
causes of the collapse in Ireland hit the news. The analysis was done
by Peter Nyberg, a former International Monetary Fund economist. He
provided hard evidence that the Irish banking collapse was caused by
bankers taking risks on a "almost unbelievable" scale,
which was ignored by a complicit public, and a lack of adequate regulation.
The report, commissioned by former finance minister Brian Lenihan, goes
on to further blame the breakdown on “the unhindered expansion
of the property bubble financed by banks using wholesale market funding.”

Nyberg
concludes, "It appears now, with hindsight, to be almost unbelievable
that intelligent professionals appear not have been aware of the size
of the risk they were taking." There was, he says, an "inability
and unwillingness to remember basic principles of banking" that
providing credit is not a sale, "it is the acquisition of a risky
asset.” he also forcefully blames the Irish people; "large
parts of Irish society were willing to let the good times roll."[3]
The similarities between Ireland and the U.S. are chilling.

Two
key factors that have kept us from ending up like these decimated European
nations has been our status as the largest economy in the world. The
second is our dollar’s status as the world’s currency. However,
the dollars reserve status may not be long for the world. There are
rumblings that the dollar will soon have to compete with the Euro and
the Yuen for its position as the world’s reserve currency. There
are even efforts to dump all currencies for a single global currency.[4]
For decades, the world has done business in dollars. The dollars’
power in this role has helped secure our economic position.[5]
That is changing and as will be explained in Part 3, there are forces
at work seeking to actively and intentionally undermine the dollar to
end its reign.

The
confidence of investors is critical to a nations’ economy as we
have seen in the collapses in Europe. Credit ratings can have a significant
effect on confidence. A top rating is incredibly important to obtaining
the lowest interest rate possible. Confidence in the stability of the
U.S. economy is critical in retaining our status as the world’s
reserve currency.

There
are several credit rating agencies. Standard & Poor’s, around
since 1860, is one of the Big Three. Moody's Investor Service and Fitch
Ratings are two more. In a release last week, S&P reported that
it has downgraded the U.S. credit rating saying,

Because
the U.S. has, relative to its 'AAA' peers, what we consider to be very
large budget deficits and rising government indebtedness and the path
to addressing these is not clear to us, we have revised our outlook
on the long-term rating to negative from stable.”

The
S & P announcement goes on to say, that they, “believe
there is at least a one-in-three likelihood that we could lower our
long-term rating on the U.S. within two years,"[6]
Moody’s has also stated that they will possibly lower the U.S.
credit rating
in the next two years if we don’t reverse the expansion of our
debt saying, “if there are not offsetting measures to reverse
the deterioration in negative fundamentals.”[7]

The
real danger is that the loss of an AAA rating would immediately cause
the interest rates the U.S. pays to our debt holders would increase.
Nobody knows how much the interest rate would increase, but we already
will pay an estimated $431 billion in 2011,[8]
or $5.5 trillion over the next ten years. If Interest rates went up
by just 1 percent, it would increase our ten year interest payments
to $6.8 trillion.[9]
That’s roughly a $130 billion or 30 percent increase
to the annual budget which further exacerbates the deficit and national
debt woes.

The
deterioration of the American economy is the result of the rapidly expanding
federal government that is transforming the U.S. from a free market
economy to a socialist economy similar to what is devastating Europe
today. A stunning new USA Today report reveals that a record 18.3 percent
of all personal income in America now comes from federal payments like
Social Security, Medicare and food stamps. That’s up from 12.5
percent in 2000, most of it in the past two and a half years. Conversely,
a record low of only 51 percent of all personal income comes from wages
in the private sector.[10]

In
other words, work for pay no longer dominates the source of income.
But this also has another affect. As the total income from wages declines,
so do the income tax revenues to the federal government, making it harder
and harder to ever balance the budget as fewer workers pay for government
programs.

This
also has real world consequences. As the U.S. economy flounders China
is set to surpass the Gross Domestic Product (GDP) of America. The International
Monetary Fund (IMF) has forecast that the Chinese economy will expand
from $11.2 trillion this year to $19 trillion in 2016, while the size
of the U.S. economy will rise from $15.2 trillion to $18.8 trillion.
That means
that the U.S. economy will no longer be the world’s largest.

According
to this IMF prognosis, the candidate who wins the U.S. Presidency in
the next election will be the final executive office holder in our country
to preside over the world’s largest economy.[11]
Imagine a world where China, a country that rigidly and sometimes violently
and lethally enforces laws to control every aspect of the lives of its
people, is the most powerful economy. It won’t be good.

Two
Diametrically Opposed Solutions

There
are two opposing camps divining a solution to these astronomical problems.
One says keep spending and dumping into entitlement programs and making
the government bigger and bigger. The other says cut spending, cut taxes,
and cut the size of government. They can’t both be right.

Paul
Ryan, Congressman from Wisconsin proposed a blueprint to begin solving
the issues. The Ryan plan reduces federal spending by $6 trillion over
10 years – from the current 24 percent of GDP to the historical
post-World War II average of about 20 percent.[12]
Among its key provisions, it provides a flat tax to eliminate all the
loopholes currently used by the rich to avoid taxes. Provides a standard
deduction of $39,000 (for a family of four). Replaces the corporate
income tax—currently the second highest in the industrialized
world—with a business consumption tax of 8.5%.

For
entitlements Ryan’s blueprint provides a “means” test
for eligibility to receive benefits, creates a voucher system for Medicare,
and preserves the existing Social Security program for those 55 or older.[13]
Ryan never said it was a final plan, but was a starting point. Conservative
critics say it doesn’t do enough. Of course the other camp says
spend spend spend, no “Ryan” for us. That is the camp that
gave us the health care law last year that was supposed to reduce the
federal deficit. However, when all the eggs were counted and the fuzzy
math removed, Obamacare will actually cost us over $2 trillion
according to the CBO (Congressional Budget Office).[14]

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Obama
used the same fuzzy math to calculate his $4 trillion cut to the deficit
in the next 12 years. When the Committee for a Responsible Federal Budget
analyzed Obama’s math, they found the savings were only about
$2.5 trillion.[15]
Worse, the Obama plan does not address entitlement programs in a meaningful
way. There is no way the deficit/debt crisis can be resolved unless
entitlements are addressed.

The
fact that Obama and other progressives demagogued Ryan’s plan
because he did address entitlements is a clear indication that Obama
did not touch entitlements solely because he is using it (once again)
as a political club to bash Republicans by throwing fear into seniors
and other recipients of entitlements. He as much as proved that in an
April 18 Town Hall meeting in which he said, my “vision is less
about reducing the deficit than it is about changing the basic social
compact in America.”[16]
In other words, changing the nation to full-blown socialism is more
important than the looming budget crisis.

Obama’s
plan to tax the rich is a red herring as well. Not only does the top
5 percent of income earners pay over 60 percent of all income taxes,
the Heritage Foundation analyzed how much taxing the rich at pre-Bush
rates would raise in revenue. It would raise only $700 billion in ten
years out of the $9 trillion Obama’s budget adds in debt over
the same period.[17] The only conceivable reason
he is doing it is to wage class warfare to get the support of those
on the bottom half of the income range, who only pay about 3 percent
of all income taxes.

The
U.S. business climate has been drastically undermined by over-regulation.
Many businesses have been taxed to the point of being incapable of doing
business here, or buried so deep in regulations and taxes that they
have gone out of business altogether. The cost of regulations is not
trivial. Annual regulatory compliance costs hit a whopping $1.75 trillion
in 2008.[18] That is a “hidden tax”
of over 50 percent of the entire 2010 budget! It exceeds all 2008 corporate
pretax profits of $1.36 trillion. Worse, businesses had to wade through
81,405 pages of new and proposed regulations in the Federal Register
in 2010, 24,914 pages of which were final rules.

How
can small and medium businesses hope to keep up with this avalanche?
The truth is, they can’t. As with over taxation, many businesses
go out of business, which results in a “lost opportunity cost.”
It is impossible to predict what this cost is, but many analysts believe
it is equal to, or greater than the direct cost of $1.75 trillion. If
the government was serious about reducing the deficit, reducing unneeded
regulations and allow the free market to operate as it should would
greatly expand business activity, profits, and therefore tax income
on the profits.

The
taxes on individuals have also become unbelievably burdensome with a
tax on everything. [a] This country has been unique
in human history. It has been a place where the circumstances of your
birth need not dictate your future. It has been a place where the masses
longed to come from nations all over the world to find a better life.
It has been the land of the American Dream; the place where ANYONE can
become ANYTHING if they are willing to work for it. The bigger the government
gets and the more facets of our economy that it controls, the dimmer
the American dream will become until it goes completely dark.

People
do what they want to do. If Washington is not fixing these problems;
if they let it become too big to fix, it can only be intentional. It
is too obvious from history what will happen to us if things are not
changed. It is clear that redistribution of wealth is the goal of progressives
in general and this president specifically. When you ask yourself “why?”
remember that. We can do what we want to do. If we want change, we need
to make it happen. We have free elections. We need to be smarter about
our choices of who we vote for.

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“Senator”
Obama was wrong. The buck doesn’t stop with the Senate. There
is accountability and it lies with us. We cannot blame our government
because we elect them. It is our responsibility. If we want change,
we have to make change ourselves. Make your voice heard in the voting
booth. We need to change how we think, how we spend, how we live. Many
of our households run the way the government runs, we have planned deficits.
We spend way more than we earn and tell ourselves we deserve it, all
the while compounding the problem. While our government spends billions
a day, not unlike Ireland, we are too quick to look the other way and
say, “let the good times roll.” For part one click below.

Dr.
Coffman is President of Environmental Perspectives Incorporated (epi-us.com)
and CEO of Sovereignty International (sovereignty.net) in Bangor Maine.
He has had over 30 years of university teaching, research and consulting
experience in forestry and environmental sciences. He produced the acclaimed
DVD Global Warming or Global Governance (warmingdvd.com). His newest book,
Rescuing a Broken America (rescuingamericabook.com) is receiving wide
acclaim. He can be reached at 207-945-9878.

How can small and
medium businesses hope to keep up with this avalanche? The truth is, they
can’t. As with over taxation, many businesses go out of business,
which results in a “lost opportunity cost.” It is impossible
to predict what this cost is, but many analysts believe it is equal to,
or greater than the direct cost of $1.75 trillion.